Draft of Financial Reporting Act gets Muhith’s approval

Express (July 26, 2011)

The draft of the much-awaited Financial Reporting Act (FRA) that received approval of Finance Minister AMA Muhith last week will soon be placed before the cabinet for consideration, sources said.

Banks, chartered accounting (CA) firms, financial institutions (FIs) and listed companies will come under a set of strict and uniform regulations incorporated into the proposed FRA to ensure financial transparency and good governance in their operations.

The non-government-organisations (NGOs), insurance companies and public sector corporations will also come under the purview of the proposed Act, under which a Financial Reporting Council (FRC) will be established to oversee the accounting and financial standards of the institutions, a senior finance official said Monday.

Finance Minister AMA Muhith approved the draft of the Act last week, which will be sent to the cabinet division for approval, a source in the finance ministry said.

"The proposed Financial Reporting Act, 2011 will now be placed at the cabinet meeting for approval," a senior finance ministry official told the FE.

"After the draft of the act gets cabinet approval, a high-powered FRC will be established in the country to ensure compliance with the reporting regulations by all financial institutions and the chartered accounting (CA) firms," he added.

According to the draft of the Act, a set of uniform system of maintaining accounting module will be made mandatory for the financial institutions and other organisations on which the act will be applicable.

The CA firms must also meet a set of conditions to be fixed by the proposed FRC in relation to the finalisation of the financial statements of companies concerned. A provision of punishment for errant CA firms has been in corporated into the proposed Act.

Presently, there is no uniform system of maintaining financial statements by the companies and firms. Nor there exists any legal provision to punish CA firms involved in accounting malpractice, officials said.

They said the CA firms are now blamed for lack of standard accounting and auditing process, non-compliance with accounting and auditing standards and quality of financial reports certified by the auditors.

"The CA firms must have compliance methods with ethics, education and training facilities and strong institutional framework in delivering expected service to their clients," a high official in the MoF said.

The proposed FRA will enable both the CA firms and financial institutions to update their own system of financial statements and internal financial governance. The proposed Act will enhance the credibility of financial reporting, promote the highest standards among auditors, improve the financial integrity of listed companies and promote the development of the accountancy profession, the draft said.

The officials in the MoF said, the last caretaker government promulgated the Financial Reporting Ordinance, 2008, which the incumbent government did not endorse for a number of reasons.

"We have changed a lot of provisions in the new Act compared to the Ordinance to cater to the needs of both financial institutions and CA firms," a high official involved in preparing the draft said.

The World Bank has long been pursuing the government to enact such an Act to establish the highest financial transparency in financial sector, sources said.